Creating an FBT liability

An FBT liability may arise when a business purchases an asset that’s used by an employee or associate of an employee for personal purposes.

Both the business and the employee must report these correctly.

Case study

A property company claimed deductions for a boat on the basis that it was used for marketing the company. Large deductions were claimed relating to running the boat. This attracted the ATO’s attention and they conducted a review.

The ATO discovered the boat was used by the director and other employees for private trips, and to host parties for people who had paid to attend the company's property seminars.

When looking at the overall business activities, the ATO determined the director had purchased the boat primarily for their own private use. As a result, the ATO disallowed the deductions and the private use of the boat was a fringe benefit for the employees of the company. The company had to lodge an FBT return and pay the resulting FBT liability, as well as the income tax shortfall, interest and penalties.

Information your records need to show Examples of types of records

You must maintain appropriate records that explain transactions where you have:

  • taken money or assets from your business
  • used the business's assets for private purposes
  • received a trust distribution
  • been loaned money or assets by your company or trust.

The company or trust should keep records of any loan agreements and documents explaining payments being made.

If you take money out of the business or use its assets, make sure you keep proper records that explain all your:

  • business transactions, including all income, payments and loans to you and your associates from the business
  • loans from you to the business.
  • Statement of distribution
  • Trust return
  • Dividend and Interest Schedule which forms part of the Company Tax Return

Claiming small business tax deductions

Steps Progress

What are deductions and what can I claim?

5 mins

Accounting for private use of assets

9 mins

Expenses you can never deduct

1 mins

Expenses you can deduct over time

10 mins

Stock and asset records

5 mins

Expenses you can deduct immediately

5 mins

Other deductions records

1 mins

Motor vehicle deductions

4 mins

Motor vehicle deductions records

2 mins

Related courses

1 mins

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